Sunday 21 December 2014

Bank boosts family home market with new deal on trackers

Homeowners can trade up and hold on to cheap loans

Published 27/02/2014 | 02:30

Intense competition has broken out on mortgage deals. Photo: Thinkstock
Bank boosts family home market with new deal on trackers. Picture posed by models. Thinkstock

TENS of thousands of families are to be given the chance to move house while holding on to their valuable tracker mortgages.

Permanent TSB – one of the biggest lenders during the boom – will today outline details of a new deal to allow customers trade up without having to sacrifice their cheaper home loans.

The scheme is expected to help create movement in the sluggish family-home market where a massive shortage of property currently exists.

While two other banks, Bank of Ireland and Ulster Bank, offer limited tracker-transfers, the Permanent TSB scheme is set to go much further.

A key element of the new scheme is that homeowners will be able to keep the tracker rate, provided they pay an extra 1pc for the full term of the tracker mortgage – far longer than other banks allow.

The move is set to put massive pressure on AIB and its subsidiary EBS to offer similar deals in the hope that it will free up more houses for sale.

AIB has confirmed that it is considering launching a tracker transfer mortgage.

Under the PTSB plan, a couple who owe €250,000 on their tracker who pay a €1,000 monthly mortgage will be able to take that loan with them should they move house.

They will pay slightly more under the terms of the deal at €1,100 a month, but they will keep their tracker.

This is much more appealing than taking out a new €250,000 mortgage on variable terms, involving repayments of €1,400 a month.

A combination of people clinging on to their cheap trackers as well as the problem of negative equity – where the amount owed on the mortgage is more than the home is worth – are seen as key reasons people will not move house.

This has contributed to a shortage of family-type homes, particularly in Dublin, which is a huge impediment to the recovery of the housing market.

It has created a "tracker generation" who are trapped in the property they bought during the boom. Some of these bought apartments that are proving too small now that they are raising a family.

Around 375,000 residential mortgages are trackers, which are regarded as more valuable than gold bars.

Permanent TSB will boast that its tracker-transfer product is the best in the market.

It will only apply to residential mortgages, but those in negative equity will be able to apply for it. The move was signalled in this paper last May, but regulatory requirements meant its launch was held up.

It will come as a welcome boost to families who feel trapped in their property because relocating would mean giving up a tracker and paying multiples of their current interest rate. If they need to borrow additional funds to buy a new property they will borrow at a variable or fixed rate.

Permanent TSB issued around one in five mortgages during the boom and has an estimated 160,000 mortgages, which includes residential and buy-to-let loans.

Bank of Ireland has a tracker transfer deal that increases the margin on a tracker mortgage being transferred by an extra 1.3pc, and only allows this for five years. After that, homeowners have to repay all the mortgage on a much higher variable or fixed rate.

And Ulster Bank has shut off the option for people in negative equity to keep their tracker mortgage for the full term when they move to a new property.

It changed its tracker transfer offer last month and will now only allow movers who are on good-value trackers to keep the tracker for five years, and at a much higher interest rate.

Ulster Bank customers paying 1.25pc on their tracker will likely end up paying 2.5pc on the new five-year tracker amount that is transferred under the bank's latest deal.

Typical tracker rates are set at 1pc above the European Central Bank (ECB) rate, which will mean an interest rate of 1.25pc.

A couple who owe €250,000 on their tracker with Permanent TSB, and pay a €1,000 monthly mortgage, will be able to take that loan with them should they move house.

VARIABLE

They will pay slightly more under the terms of the deal at €1,100 a month, but they will keep their tracker.

This is much more appealing than taking out a new €250,000 mortgage on variable terms, involving repayments of €1,400 a month.

A couple who borrowed €250,000 on a tracker rate of 1pc over the ECB would be paying €980 a month, assuming they still have 25 years left on the loan.

Under the Permanent TSB tracker-transfer offer, the couple moving a €250,000 mortgage on to a new property will pay 2.25pc, which works out at around €1,000 a month. They will keep this rate for the remainder of the term of the tracker mortgage.

If they move house, without the tracker transfer product, the variable rate would be 4.5pc, meaning monthly repayments of close to €1,400. This means a saving of around €400 a month under the new deal.

Any extra money needed to buy the new home would have to be borrowed at the variable rate of 4.5pc.

Charlie Weston Personal Finance Editor

Irish Independent

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